Beware of iceberg loans

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Have you ever seen an interest rate advertised by a lender and thought it must be too good to be true? It often is.

What are Iceberg Loans?

Iceberg Loans are where a specific rate is advertised by lenders and people apply for a loan at that rate, only to find out that they were not given the advertised rate. This leads to them paying a lot more money as interest on their loan.

According to The Times, only 51% of customers are offered the advertised rates on borrowing. Spare a thought for the 49% who receive the unfortunate surprise of having to repay more than they were lead to believe.

The cost

If you were to take out a loan at an advertised low rate and then realise your actual rate was two or three times higher, would you have taken out the loan in the first place?

The Times also suggest that people can often end up paying an interest rate up to 10% higher than the advertised rate. If you were to take out a debt consolidation loan in an attempt to take control of your debt and pay less interest, to then be mislead by an advertised rate, you could end up in a worse position as a result of misleading advertising.

Use loan calculators

So remember, when you need to access credit or take out a personal loan, shop around first using loan calculators to find the best deal for you. But beware, many lenders will show a ‘Headline’ rate to entice you. However, at this credit union, what you see is what you get. Our rates are transparent and we will not charge any hidden fees or penalties. To find out what you could borrow, try out our Loan Calculator.

  • The information provided in this article is for guidance and educational purposes only. Police Credit Union Ltd. does not offer regulated financial advice. Please seek independent financial advice.

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